The Northern Ireland secretary, Shaun Woodward, said today that he remained confident a deal would be reached on the handover of policing and justice powers to the Stormont executive.

Martin McGuinness, the deputy first minister at Stormont, has warned that the province is facing a "full-blown crisis" unless there is an agreement in place by Christmas.

Sinn Féin, McGuinness's party, has accused the Democratic Unionists, led by first minister Peter Robinson, of stalling on a deal which would see control over law and order powers pass from Westminster to Northern Ireland politicians – including republicans.

The DUP, in turn, has accused Sinn Féin of "sabre-rattling" and warned against the setting of "arbitrary deadlines".

Woodward insisted that "real progress" was being made towards an agreement.

"I think that in the coming weeks it will be possible to achieve these last parts of the package that will allow devolution to go through for policing and justice," he told BBC Radio 4's Today programme.

"I am confident that the political leaders in Northern Ireland will manage to find an agreement."

Despite Woodward's optimism, the Northern Ireland parties continue to fear that a collapse of the assembly was a possibility.

McGuinness told the BBC: "I have to say that if we don't get a date for transfer of power of policing and justice before Christmas to be effective in the new year, I do think we are in an unsustainable position.

"We would then be moving from what is a very serious situation into a full-blown crisis."

Asked if that meant he was threatening to resign, McGuinness said that that amounted to putting words in his mouth.

Alex Attwood, the policing spokesman for the nationalist SDLP, said it would be unforgivable if devolution fell because of the stand-off over justice powers.

He said: "The SDLP believes the five party leaders should meet next week and get devolution of justice sorted."

He added: "The SDLP will work vigorously in the next two weeks to get devolution of justice over the line because our community can ill afford not having justice powers in local hands.

"But the community also knows that the DUP and Sinn Féin having the lead in government only leads to the community losing out. The stand-off in '08 has led to a stand-off in '09 and there will be more stand-offs in the future."